Midterm 2004 - Answers - UBC Commerce/ FRE 295 MIDTERM EXAM...

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UBC Commerce/ FRE 295 MIDTERM EXAM SOLUTIONS October 27, 2004 v1 NAME:__________________________ STUDENT NUMBER ________________ SECTION: _______________________ PROFESSOR’S NAME: _____________________ Instructions: This exam will be marked out of 100. You will have 2 hours to do the exam. There are two parts to this exam. The first part is true-false questions. Answer all of these questions. Part II consists of longer questions. You should choose 4 out of 5 of the longer questions in Part II . For all parts, provide your answers in the space provided. This midterm has 17 pages. The last page is blank. Check now to make sure you have all pages and make sure your name, section, and student number are provided above. This is a closed-book exam. You may not use books or notes. You may use a calculator. GRADES True/False ________ / 40 Long Answers: 1. ________ / 15 (answer 4 out of 5) 2. ________ / 15 3. ________ / 15 4. ________ / 15 5. ________ / 15 TOTAL ________ / 100 1
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PART I TRUE-FALSE QUESTIONS: Mark each question as true or false, but putting an “X” in the appropriate box. There is one mark for each true-false question. 1. Ace Manufacturing’s isoquant map (labour on horizontal axis and capital on vertical axis) consists of three isoquants labeled Q = 10, Q = 20 and Q = 30 (starting from the isoquant closest to the origin and moving up and out) where Q stands for units of output. The isoquants are linear , parallel, downward sloping and equally-spaced. True False Ace can use only labour or only capital to minimize the cost of producing 20 units of output. The marginal rate of technical substitution (MRTS) of labour for capital is decreasing as we move down one of Ace’s three isoquants. Ace’s marginal product of labour (MP L ) must equal Ace’s marginal product of capital (MP K ). In Ace’s production technology, capital and labour are perfect substitutes. 2
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2. Dana spent $5000 on a consultant to determine if her proposed business mail-order enterprise was feasible (the consultant recommended the project go ahead). Dana’s parents evicted the tenants living in their basement so she could run her business from there. The salary that Dana gave up plus other fixed costs equal $4000; her variable cost of production is given by 0.1Q 2 where Q denotes units of production. True False Dana will remain in business only if her revenues can cover fixed costs, variable costs and a normal rate of return on her original investment of $5000. Dana’s marginal cost is initially decreasing with higher levels of Q but eventually rises, cutting through the minimum of average variable cost and average fixed cost.
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This note was uploaded on 01/03/2011 for the course COMM 290 taught by Professor Brian during the Winter '09 term at The University of British Columbia.

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Midterm 2004 - Answers - UBC Commerce/ FRE 295 MIDTERM EXAM...

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